Delhi Airport DIALs Centre Over Security Bill
Says New Delhi should finance widening deficit in corpus created to maintain security
New Delhi: The GMR-led operator of the Delhi airport has told the government it would not be able to meet even the mandatory security expenses at India’s biggest aviation hub, and that New Delhi should instead finance the widening deficit in the dedicated corpus created for the purpose.
“Please note that as there is a severe shortage of funds and in case the deficit continues to build up … we shall not be able to meet even the mandatory expenditure to maintain the security of the airport,” the Delhi International Airport (DIAL) CEO I Prabhakar Rao wrote in a letter last week to CISF DG OP Singh. CISF runs airport security.
The cost of security is funded through the passenger service fee (PSF) of .₹ 130 each departing passenger pays. The fund accumulated from the levy is used primarily to pay the salaries of the CISF personnel manning the airports. Officials say that it costs more than .₹ 1,300 crore to provide security at airports across the country, while the fund collected through PSF falls short by more than .₹ 400 crore.
Of this shortfall, the stateowned Airports Authority of India has a deficit of .₹ 150 crore a year, which it pays from its own corpus. Private airports, however, do not pay from their own corpus. Mumbai airport was surplus until the Terminal 2 began operations.
The aviation ministry does not want to burden passengers further and sources say that the government is in talks with the finance ministry to shift the cost of security at airports to the consolidated fund of India. If the cost head is moved to the consolidated fund, the government would finance the deficit directly.
Eros International, which owns about 73% of Eros India, manages the overseas distribution of the films and houses Eros Now. Eros India is the main operating entity, primarily responsible for content creation. Eros India’s library of over 3,000 Indian films that include Bollywood and regional hits is the largest in the country and would give an acquirer a clear advantage as the war over music and video streaming intensifies among standalone service providers, media and entertainment conglomerates, telcos and digital OTT companies.
Eros Now has rights to over 10,000 films, around half in perpetuity, in Hindi and regional languages from Eros’s internal library as well as third-party aggregated content. It has close to 2.9 million paid subscribers and over100 million registered subscribers as of June 30. JM Financial is advising Eros. Eros and Apple spokespersons declined to comment. There was no response to emails sent to Amazon and Netflix on Saturday. “Discussions are on to monetise the library. An announcement is likely soon,” said an official directly involved. But another official said talks are on but may take a while to fructify.
Founded in 1977, Eros co-produces, acquires and distributes Indian language films in multiple formats worldwide. Eros expects to maintain more than half the rights it now owns through at least December 31, 2025. In a recent investor call, Eros International group CEO Jyoti Deshpande said the company has decided to move away from large-scale acquisitions and focus on co-productions, a move that experts said was fuelled by a cash crunch and recent flops such as Sarkar 3, Rock On 2 and Baar Baar Dekho.
POWER OF ONE
“The company is under liquidity pressure. It had to pull the plug on its bond sale earlier this year when (old) allegations resurfaced,” said a film industry veteran. “Only in FY16, the company generated some free cash flows and the promoters have recently been selling shares in US to reduce debt. So divesting its catalogue or consolidating corporate structure into a single entity is becoming a necessity given the multi-level holdings, various subsidiaries in different regions.”
As of March 31, Eros had $271.5 million of borrowings outstanding, of which $180.7 million is repayable within one year.
With the lion’s share of revenue and operations accounted for by the Indian entity, analysts believe a reverse merger will be advantageous as content ownership will vest with a single set of shareholders. In the current structure, the India-listed entity doesn’t get the overseas upside and may participate only partially in Eros Now, whereas a merger will also address the concerns of minority investors on transfer pricing between the parent and the Indian entity.
In the past, Eros has been in talks with Fullerton, Sony and Amazon to sell a stake in Eros Now or the content library at a valuation of as much as $1 billion and had engaged investment bank Moelis & Co. to identify a strategic partner.
CONTENT IS KING
“For Eros, the biggest strength is its content library. We are always in talks with multiple players to syndicate content and monetise the library,” said a senior Eros executive.
The presence of foreign suitors will drive up the content cost and hence increase the value of the existing library, said Antique Stock Broking analysts Govind Agarwal and Omkar Hadkar. “Eros India is by far the leader in film content and is best placed to benefit from content monetisation perspective,” they wrote in a report. “The best part is Eros India’s library continues to growth at healthy pace (company produces about 60 films per year) and typically has two-three films in the top 10 grosser every year.”
A licensing deal makes more practical sense for Eros, said Girish Menon, partner and head, media and entertainment at KPMG in India. “Though it may not fetch top value as the deal will have non-exclusive components, it will be easier to work out. Also, it will help Eros to get a short-term breather for their requirements. On the other hand, an outright sale would mean effectively selling the business.” The Indian OTT space has become busy in the past 18 months. After Netflix’s entry in January 2016, Amazon too started acquiring film titles aggressively. While Netflix has signed deals with Shah Rukh Khan’s Red Chillies Entertainment and Aamir Khan, Amazon Prime Video, launched last year, has invested heavily in exclusive movies and TV shows and standup comedy content. It has signed long-term output deals with major production houses such as Yash Raj Films, Excel Entertainment, Dharma Productions, Vishesh Films and T-Series. Its latest deal is with Salman Khan for all his existing and future films. Amazon, which has earmarked a .₹ 2,000-crore investment for video streaming in India alone, is also is in talks with music labels to acquire content for Amazon Music, which is expected to launch in India next year. It has already signed a deal with market leader T-Series. Eros Music is among other top labels in India along with Sony Music and Saregama.
Apple has traditionally shied away from large M&As compared with Facebook and Google. CEO Tim Cook has so far focused on growing Apple’s services businesses, including Apple Music, the App Store and iCloud. Its biggest deal in its 41-year history was the $3-billion purchase of Beats Electronics in 2014. Wall Street analysts have therefore been calling for a big buyout, especially in online video streaming even as Apple has started distributing videos through its music service and pooling others’ videos in its mobile TV app, but it has no service comparable to Netflix or Amazon Prime in India. Apple Music too has been buying international content such as Carpool Karaoke. Apple Music has also released albums in the US directly through its music streaming service without any record label being involved. In India, the company charges .₹ 120 a month for individual membership after a three-month free trial, and has 400,000 subscribers. In India however it isn’t growing much, experts said, because there are many competing offerings that stream music for free and charge only for removing ads or downloads. However, the company is planning to invest about .₹ 50 crore in music-related content for users in India, curating localised playlists with a special emphasis on films, fashion and music, said an executive.
In recent years though, the maker of the iPhone has been linked to takeovers of Netflix, McLaren Technology Group and even Time Warner. Earlier this year, Sanford C Bernstein analyst Toni Sacconaghi said Apple needs at least one big acquisition in online video. To reach its $50-billion target, the company must find an extra $13 billion in services revenue over the next four years, beyond what it can generate itself. Other potential blockbuster Apple acquisition targets include Walt Disney Co and electric carmaker Tesla Inc, Baird analyst William Power wrote in a note to clients this year.
Eros India is the main operating entity, primarily responsible for content creation
(Additional reporting by Shaswati Shankar in Bangalore and Deepali Gupta in Mumbai)